Curran v. Federal Commissioner of Taxation.

Judges: Barwick CJ

Menzies J
Gibbs J
Stephen J

Court:
High Court of Australia

Judgment date: Judgment handed down 4 November 1974.

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Menzies J.: The Commissioner, for the purpose of taxing the appellant, who is a share dealer, seeks to follow a simple course to determine his profit or loss upon the buying and selling of shares in certain companies. It is to compare the price at which the appellant sold X plus Y shares in a company with the price which the appellant paid for the X shares only, attributing no cost to the Y shares because they were a bonus issue received by the appellant as the owner of the X shares. Accordingly the Commissioner looks only to the appellant's initial outlay and final receipt.

The appellant on the other hand contends that, although a bonus issue, he paid for the Y shares by the application of a dividend upon the X shares declared by the Company so that the amount of the dividend so applied is the cost of the bonus shares and is deductible.

Had the dividend been assessable income of the appellant the Commissioner would have included it in the assessment to arrive at taxable income and would, no doubt, have been content to allow the appellant the deduction claimed as the expenditure of assessable income to acquire shares. The dividend, however, was by virtue of sec. 44(2)(b)(iii) of the Act, not assessable income. Hence this dispute.

In my opinion although the resolutions of the company relating to the bonus issue disclose some confusion resulting in some inconsistency, it ought to be concluded that they did result in the declaration of a dividend and its application to pay up in full the shares to be issued as bonus shares. By reason of this, and the appellant's acceptance of the bonus shares, a payment was made for those shares out of a credit created in favour of the appellant by the declaration of the dividend. It matters not that the dividend had to be so applied and was not payable in cash. The significance of this is simply that the dividend was one within sec. 44(2)(b)(iii) of the Act.

I do not think it correct to ignore the part played by the company leading to the allotment of the bonus shares and to treat

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ATC 4302

them as but part of the appellant's original purchase notwithstanding that the purchase was made with an eye to what was, in due course, done. The appellant is, therefore, entitled to a deduction for what was so paid for the shares allotted to him.

I would accordingly answer the first question in the case stated affirmatively. I find it unnecessary to answer the second question. It has been agreed that the third question should be answered as follows -

3. 

• (a) No.
• (b) Yes. $22,513.